assignment of a claim or cause of action california

Assignment of a claim or cause of action

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• Increase efficiency
• Enhance productivity
• Improve response time
• Substantive Law
• 1 Scope of this note
• Effect of contractual prohibition on assignment
• 3 At what stage may a claim be assigned?
• 4 To whom can a cause of action be assigned?
• Legal assignment or equitable assignment?
• Requirements for a legal assignment
• Requirements for an equitable assignment
• Effect of consideration
• No loss occurring to assignee before assignment of claim
• General principles
• Exceptions to the rules on maintenance and champerty
• Security for costs
• Costs incurred by the assignor before the assignment
• Who is liable for costs awarded in favour of the defendant?
• Assignment of benefit and burden of solicitors' retainer
• When might an office-holder assign a claim?
• Who may assign a claim in insolvency?
• Claims capable of assignment by an office-holder
• Claims not capable of assignment by an office-holder
• Assignment of claims to an office-holder
• Potential liability of office-holder
• 10 Drafting an assignment of a cause of action
• Legal assignment
• Equitable assignment
• Assigning proceedings that have been commenced
• Counterclaims where a claim has been assigned

Assignment of claims

An untraditional approach to combining the claims of plaintiffs; how it differs from class actions, joinder, consolidation, relation and coordination

A large class of plaintiffs engages you to bring a common action against a defendant or set of defendants. As counsel, you resolve to combine the plaintiffs’ various claims into a single lawsuit. In this article, we touch on some of the traditional approaches, such as a class action, joinder, consolidation, relation, and coordination. To that list, we add as an approach the assignment of claims, a procedural vehicle validated by the United States Supreme Court, but not typically employed to combine the claims of numerous plaintiffs.

Class actions

In Hansberry v. Lee (1940) 311 U.S. 32, the United States Supreme Court explained that “[t]he class suit was an invention of equity to enable it to proceed to a decree in suits where the number of those interested in the subject of the litigation is so great that their joinder as parties in conformity to the usual rules of procedure is impracticable. Courts are not infrequently called upon to proceed with causes in which the number of those interested in the litigation is so great as to make difficult or impossible the joinder of all because some are not within the jurisdiction or because their whereabouts is unknown or where if all were made parties to the suit its continued abatement by the death of some would prevent or unduly delay a decree. In such cases where the interests of those not joined are of the same class as the interests of those who are, and where it is considered that the latter fairly represent the former in the prosecution of the litigation of the issues in which all have a common interest, the court will proceed to a decree.” ( Id. at pp. 41-42.)

In California’s state courts, class actions are authorized by Code of Civil Procedure section 382, which applies when the issue is “‘one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court.’” ( Noel v. Thrifty Payless, Inc. (2019) 7 Cal.5th 955, 968; see also, e.g., Cal. Rules of Court, rules 3.760-3.771.) “The party advocating class treatment must demonstrate the existence of an ascertainable and sufficiently numerous class, a well-defined community of interest, and substantial benefits from certification that render proceeding as a class superior to the alternatives.” ( Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1021.) “The community of interest requirement involves three factors: ‘(1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class.’” ( Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 435; see Civ. Code, § 1750 et seq. [Consumers Legal Remedies Act]; cf. Fed. Rules Civ.Proc., rule 23(a) [prerequisites for federal class action].)

Parties, acting as co-plaintiffs, can also obtain economies of scale by joining their claims in a single lawsuit. Under California’s permissive joinder statute, Code of Civil Procedure section 378 (section 378), individuals may join in one action as plaintiffs if the following conditions are met:

(a)(1) They assert any right to relief jointly, severally, or in the alternative, in respect of or arising out of the same transaction, occurrence, or series of transactions or occurrences and if any question of law or fact common to all these persons will arise in the action; or

(2) They have a claim, right, or interest adverse to the defendant in the property or controversy which is the subject of the action.

(b) It is not necessary that each plaintiff be interested as to every cause of action or as to all relief prayed for. Judgment may be given for one or more of the plaintiffs according to their respective right to relief.

This strategy of joining multiple persons in one action has been referred to as a “mass action” in some decisions involving numerous plaintiffs. (See Aghaji v. Bank of America, N.A. (2016) 247 Cal.App.4th 1110, 1113; Petersen v. Bank of America Corp . (2014) 232 Cal.App.4th 238, 240 ( Petersen ); cf. 28 U.S.C. § 1332(d)(11)(B) [federal definition of “mass action”].)

In Petersen , for example, 965 plaintiffs who borrowed money from Countrywide Financial Corporation in the mid-2000’s banded together and filed a single lawsuit against Countrywide and related entities. ( Petersen , supra , 232 Cal.App.4th at pp.  242-243.) The plaintiffs alleged Countrywide had developed a strategy to increase its profits by misrepresenting the loan terms and using captive real estate appraisers to provide dishonest appraisals that inflated home prices and induced borrowers to take loans Countrywide knew they could not afford. ( Id. at p. 241.) The plaintiffs alleged Countrywide had no intent to keep these loans, but to bundle and sell them on the secondary market to unsuspecting investors who would bear the risk the borrowers could not repay. ( Id. at pp. 241, 245.) Countrywide and the related defendants demurred on the ground of misjoinder of the plaintiffs in violation of section 378. The trial court sustained the demurrer without leave to amend and dismissed all plaintiffs except the one whose name appeared first in the caption. ( Id . at p. 247.) The Court of Appeal reversed and remanded for further proceedings. ( Id . at p. 256.)

Petersen resolved two questions. First, it concluded the operative pleading alleged wrongs arising out of “‘the same . . . series of transactions’” that would entail litigation of at least one common question of law or fact. ( Petersen, supra, 232 Cal.App.4th at p. 241.) The appellate court noted the individual damages among the 965 plaintiffs would vary widely, but the question of liability provided a basis for joining the claims in a single action. ( Id. at p. 253.) Second, the appellate court concluded “California’s procedures governing permissive joinder are up to the task of managing mass actions like this one.” ( Id. at p. 242.)

Consolidation

Code of Civil Procedure section 1048, subdivision (a) provides that, “[w]hen actions involving a common question of law or fact are pending before the court, it may order a joint hearing or trial of any or all the matters in issue in the actions; it may order all the actions consolidated and it may make such orders concerning proceedings therein as may tend to avoid unnecessary costs or delay.” (See also Fed. Rules Civ.Proc., rule 42.)

There are two types of consolidation. The first is a consolidation for purposes of trial only, when the actions remain otherwise separate. The second is a complete consolidation or consolidation for all purposes, when the actions are merged into a single proceeding under one case number and result in only one verdict or set of findings and one judgment. ( Hamilton v. Asbestos Corp., Ltd. (2000) 22 Cal.4th 1127, 1147 ( Hamilton ).)

Consolidation is designed to promote trial convenience and economy by avoiding duplication of procedure, particularly in the proof of issues common to the various actions. (4 Witkin, Cal. Procedure (5th ed. 2008) Pleadings, § 341, p. 470.) Unless all parties in the involved cases stipulate, consolidation requires a written, noticed motion (Cal. Rules of Court, rule 3.350(a); Sutter Health Uninsured Pricing Cases (2009) 171 Cal.App.4th 495, 514), and is subject to the trial court’s discretion. ( Hamilton, supra, 22 Cal.4th at p. 1147.)

In a procedure somewhat similar to consolidation, under California Rules of Court, rule 3.300(a), a pending civil action may be related to other civil actions (whether still pending or already resolved by dismissal or judgment) if the matters “[a]rise from the same or substantially identical transactions, incidents, or events requiring the determination of the same or substantially identical questions of law or fact” or “[a]re likely for other reasons to require substantial duplication of judicial resources if heard by different judges.” ( Id. , rule 3.300(a)(2), (4).) An order to relate cases may be made only after service of a notice on all parties that identifies the potentially related cases. No written motion is required. ( Id ., rule 3.300(h)(1).) The Judicial Council provides a standard form for this purpose. When a trial court agrees the cases listed in the notice are related, all are typically assigned to the trial judge in whose department the first case was filed. ( Id ., rule 3.300(h)(1)(A).)

Related cases are not consolidated cases. Related cases maintain their separate identities but are heard by the same trial judge. Consolidated cases, in contrast, essentially merge and proceed under a single case number.

Coordination

Under Code of Civil Procedure section 404, the Chairperson of the Judicial Council is authorized to coordinate actions filed in different courts that share common questions of fact or law. (See Cal. Rules of Court, rule 3.500 et seq.) The principles underlying coordination are similar to those that govern consolidation of actions filed in a single court. (See Pesses v. Superior Court (1980) 107 Cal.App.3d 117, 123; see also 28 U.S.C. § 1407 [complex and multidistrict litigation].)

Thus, for example, in McGhan Med. Corp. v. Superior Court (1992) 11 Cal.App.4th 804 ( McGhan ), the plaintiffs petitioned for coordination of 300 to 600 breast implant cases pending in 20 different counties. Coordination was denied because the motion judge found that common questions did not predominate “in that the cases involve[d] different implants, different designs, different warnings, different defendants, different theories of defect, different modes of failure, and different injuries.” ( Id. at p. 808.) Among other factors, the trial court concluded that it was impractical to send hundreds of cases to a single county and that the benefits of coordination could be best achieved by voluntary cooperation among the judges in the counties where the cases were pending. ( Id. at p. 808, fn. 2.)

The Court of Appeal reversed in an interlocutory proceeding, ruling the trial court had misconceived the requirements of a coordinated proceeding. ( McGhan, supra, 11 Cal.App.4th at p. 811.) As the appellate court explained, Code of Civil Procedure section 404.7 gives the Judicial Council great flexibility and broad discretion over the procedure in coordinated actions. ( Id. at p. 812.) Thus, on balance, the coordinating judge would be better off confronting the coordination drawbacks (including difficulties arising from unique cases, discovery difficulties, multiple trials, the necessity of travel, and occasional delay) because the likely benefits (efficient discovery and motion practice) were so much greater. ( Id. at pp. 812-814.)

Civil Code section 954 states “[a] thing in action, arising out of the violation of a right of property, or out of an obligation, may be transferred by the owner.” The term “thing in action” means “a right to recover money or other personal property by a judicial proceeding.” (Civ. Code, § 953.) California’s Supreme Court has summarized these provisions by stating: “A cause of action is transferable, that is, assignable, by its owner if it arises out of a legal obligation or a violation of a property right. . . .” ( Amalgamated Transit Union, Local 1756, AFL-CIO v. Superior Court (2009) 46 Cal.4th 993, 1003.) The enactment of Civil Code sections 953 and 954 lifted many restrictions on assignability of causes of action. ( Wikstrom v. Yolo Fliers Club (1929) 206 Cal. 461, 464; AMCO Ins. Co. v. All Solutions Ins. Agency, LLC (2016) 244 Cal.App.4th 883, 891 ( AMCO ).)

Thus, California’s statutes establish the general rule that causes of action are assignable. ( AMCO, supra , 244 Cal.App.4th at pp. 891-892.) This general rule of assignability applies to causes of action arising out of a wrong involving injury to personal or real property. ( Time Out, LLC v. Youabian, Inc. (2014) 229 Cal.App.4th 1001, 1009; see also, e.g., Bush v. Superior Court (1992) 10 Cal.App.4th 1374, 1381 [“‘assignability of things [in action] is now the rule; nonassignability, the exception. . .’”].)

Although the assignment of claims on behalf of others to an assignee, or group of assignees, is not unique, it has not typically been used as a procedural vehicle for combining the claims of numerous plaintiffs. But, that’s not to say it can’t be done.

In fact, the United States Supreme Court has sanctioned such an approach. In Sprint Communications Co., L.P. v. APCC Services, Inc. (2008) 554 U.S. 269 ( Sprint ), approximately 1,400 payphone operators assigned legal title to their claims for amounts due from Sprint, AT&T, and other long-distance carriers to a group of collection firms described as “aggregators.” ( Id. at p. 272.) The legal issue presented to the United States Supreme Court was whether the assignees had standing to pursue the claims in federal court even though they had promised to remit the proceeds of the litigation to the assignor. ( Id . at p. 271.) The Court concluded the assignees had standing.

In support of its conclusion, the Court recognized the long-standing right to assign lawsuits:

. . . [C]ourts have long found ways to allow assignees to bring suit; that where assignment is at issue, courts — both before and after the founding — have always permitted the party with legal title alone to bring suit; and that there is a strong tradition specifically of suits by assignees for collection. We find this history and precedent ‘well nigh conclusive’ in respect to the issue before us: Lawsuits by assignees, including assignees for collection only, are ‘cases and controversies of the sort traditionally amenable to, and resolved by, the judicial process.’

( Sprint , supra , 554 U.S . at p. 285.)

On this basis, the Court concluded:

Petitioners have not offered any convincing reason why we should depart from the historical tradition of suits by assignees, including assignees for collection. In any event, we find that the assignees before us satisfy the Article III standing requirements articulated in more modern decisions of this Court.

( Sprint , supra , 554 U.S at pp. 285-286.)

The Court also considered the argument that the aggregators were attempting to circumvent the class-action requirements of Federal Rule of Civil Procedure 23. ( Sprint, supra, 554 U.S. at pp. 290-291.) The Court rejected this argument as a barrier to aggregation by assignment on the grounds that (1) class actions were permissive, not mandatory, and (2) “class actions constitute but one of several methods for bringing about aggregation of claims, i.e., they are but one of several methods by which multiple similarly situated parties get similar claims resolved at one time and in one federal forum. [Citations.]” ( Id. at p. 291.)

Granted, Sprint arose in the context of Article III, a “prudential standing” analysis. However, in reaching its decision that assignees had standing, the Court relied significantly on three California state decisions addressing assignment of rights under California law. (See Sprint, supra, 554 U.S. at pp. 294-296.)

Under California law, assignment of claims is not a panacea. Not all claims can be assigned. In California, assignment is not allowed for tort causes of action based on “wrongs done to the person, the reputation or the feelings of an injured party,” including “causes of action for slander, assault and battery, negligent personal injuries, seduction, breach of marriage promise, and malicious prosecution.” ( AMCO, supra , 244 Cal.App.4th at p. 892 [exceptions to assignment also include “legal malpractice claims and certain types of fraud claims”].) Other assignments are statutorily prohibited. (See, e.g., Civ. Code, § 2985.1 [regulating assignment of real property sales contracts]; Gov. Code, § 8880.325 [state lottery prizes not assignable].)

Likewise, because a right of action cannot be split, a partial assignment will require the joinder of the partial assignor as an indispensable party. (See, e.g., Bank of the Orient v. Superior Court (1977) 67 Cal.App.3d 588, 595 [“[W]here . . . there has been a partial assignment all parties claiming an interest in the assignment must be joined as plaintiffs . . . ”]; 4 Witkin, Cal. Procedure, supra, Pleadings, § 131(2), p. 198 [“If the assignor has made only a partial assignment, the assignor remains beneficially interested in the claim and the assignee cannot sue alone”].)

That said, California’s rules of law regarding standing and assignments do not prohibit an assignee’s aggregation of a large number of claims against a single defendant or multiple defendants into a single lawsuit. To the contrary, no limitations or conditions on this type of aggregation of assigned claims is imposed from other rules of law, such as California’s compulsory joinder statute. (See Sprint , supra , 554 U.S. at p. 292 [to address practical problems that might arise because aggregators, not payphone operators, were suing, district “court might grant a motion to join the payphone operators to the case as ‘required’ parties” under Fed. Rules Civ.Proc., rule 19].)

There are many procedural approaches to evaluate when seeking to combine the claims of multiple plaintiffs. Class actions and joinders are more traditional methods that trial counsel rely on to bring claims together. Although a largely unexplored procedural approach, assignment appears to be an expedient way of combining the claims of numerous plaintiffs. It avoids the legal requirements imposed for class actions and joinders, and it sidesteps a trial judge’s discretion regarding whether to consolidate, relate, or coordinate actions. Indeed, under the right circumstances, an assignment of claims might provide a means of bypassing class action waivers in arbitration agreements. Perhaps an assignment of claims should be added to the mix of considerations when deciding how to bring a case involving numerous plaintiffs with similar claims against a common defendant or set of defendants.

Judith Posner

Judith Posner is an attorney at Benedon & Serlin, LLP , a boutique appellate law firm.

Gerald Serlin

Gerald Serlin is an attorney at Benedon & Serlin, LLP , a boutique appellate law firm.

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California Supreme Court Overrules Existing Law on Assignment of Claims After Loss

On August 20, 2015, the California Supreme Court issued its unanimous opinion in Fluor Corp. v. Superior Court , Opinion No. S205889, an appeal from Fluor Corp. v. Superior Court (2012) 208 Cal.App.4th 1506, review granted and opinion superseded sub nom. Fluor Corp. v. S.C. (Cal. 2012) 149 Cal.Rptr.3d 675 (" Fluor ").  Petitioner Fluor Corporation asked the California Supreme Court to revisit its opinion in Henkel Corp. v. Hartford Accident and Indemnity Co. (2003) 29 Cal.4th 934 (" Henkel ").

Overruling Henkel , in an opinion written by Chief Justice Cantil-Sakauye, the Court unanimously sided with Fluor, holding that:

For the reasons set forth, Insurance Code section 520 applies to third party liability insurance. Under that provision, after personal injury (or property damage) resulting in loss occurs within the time limits of the policy, an insurer is precluded from refusing to honor an insured's assignment of the right to invoke defense or indemnification coverage regarding that loss. This result obtains even without consent by the insurer — and even though the dollar amount of the loss remains unknown or undetermined until established later by a judgment or approved settlement.

The Court remanded the case to the Court of Appeal for proceedings consistent with the Court's opinion.

The State of the Law Prior to Fluor .

This dispute arises out of the enforceability of anti-assignment clauses that are commonly included in insurance policies.  A typical anti-assignment clause reads:

Your rights and duties under this policy may not be transferred without our written consent except in the case of death of an individual named insured.

Henkel addressed the issue of whether the insured conveyed its liability insurance policies by operation of law when it sold certain assets to a successor corporation, where those assets included liabilities (i.e., a chemical products business).  Claimants sued the successor corporation for personal injuries allegedly caused by the predecessor corporation's chemical products business.  The predecessor corporation's liability insurers refused to defend the claim against the corporate successor, contesting the assignment of the insurance policies.  The successor corporation sued the liability insurers for refusing to defend. 

Henkel held that anti-assignment clauses in liability insurance policies are enforceable except if:

(1) at the time of the assignment the benefit has been reduced to a claim for money due or to become due, or

(2) at the time of the assignment the insurer has breached a duty to the insured, and the assignment is of a cause of action to recover damages for that breach.

( Henkel at 945.)  In other words, with regard to a liability policy, a court will enforce an anti-assignment clause unless the claim has already been reduced to a judgment or settlement, or the insurer has committed an assignable breach.

Fluor's facts are nearly identical to Henkel's . A successor corporation seeks coverage for asbestos claims under a predecessor corporation's liability policies. ( Fluor at 528.)  The policyholder, seeking to avoid an anti-assignment clause, argues that Henkel was wrongly decided.  The policyholder argues that Henkel ignored California Insurance Code section 520, enacted in 1872, which states "[a]n agreement not to transfer the claim of the insured against the insurer after a loss has happened, is void if made before the loss...."  In other words, Henkel appears to conflict with Insurance Code section 520. 

The Court of Appeal began its opinion by noting:

During the 130 years since its enactment, the 1872 statute has been cited only once. No one raised it in Henkel . This decision will be the second judicial opinion in the history of the state to even mention the statute, and the first to address it.  ( Id. )

After reviewing cases in both California and other states, the court of appeal concluded:

Here is the nub. The 1872 Legislature drew no bright lines and made no controlling pronouncements about liability insurance, or about how "loss" in the context of such policies is to be defined. We see nothing in Insurance Code section 520 or in Henkel to support Fluor–2's assumption that the Supreme Court would have reached a different result had the parties in that appeal briefed or argued the statute's applicability. In the absence of an express legislative directive, stare decisis controls.  ( Id . at 537.)

In sum, Henkel held that a policyholder can assign its rights, despite an anti-assignment clause, only after liability had been established (or a breach occurred).  Fluor Corporation argued, based on statute and on common law grounds, that a policyholder can assign its rights any time after a "loss" has occurred.  In the case of a liability policy, the "loss" is the event that triggers coverage under the policy (e.g., "bodily injury" or "property damage").

The California Court of Appeal in Flour sided with Hartford. The Court of Appeal concluded that section 520 does not apply to liability insurance. The appellate court further suggested that even assuming the statute applies to such policies, it should be construed to reflect the same rule articulated in Henkel .  On appeal to the California Supreme Court, Fluor argued against both propositions. 

The California Supreme Court's Opinion in Fluor .

In a unanimous decision written by the Chief Justice, the Supreme Court agreed with Fluor on both issues.  The Court, applying section 520, found that the statute applies to third party liability insurance, and that, properly construed in light of its relevant language and history, section 520 bars an insurer from refusing to honor an insured's assignment of policy coverage regarding injuries that predate the assignment.  The Court concluded that "It follows that the decision in Henkel, which assessed the proper application of a consent-to-assignment clause under common law principles, cannot stand in view of the contrary dictates of the controlling statutory provisions of section 520." (Slip Op. at 3.)

The Court concluded:

As further explained below, the rule embodied in section 520 is consistent with the overwhelming majority of cases decided before and since Henkel. The principle reflected in those cases — precluding an insurer, after a loss has occurred, from refusing to honor an insured's assignment of the right to invoke policy coverage for such a loss — has been described as a venerable one, borne of experience and practice, facilitating the productive transformation of corporate entities, and thereby fostering economic activity. ( Id .)

In short, after the Fluor decision the law in California is that courts will not enforce anti-assignment provisions in liability insurance policies after the loss has occurred.  With regard to standard occurrence-based liability policies, the "loss" is the coverage-triggering event, such as "property damage" or "bodily injury," and not the finding of liability.

Related Professionals

When Assigning the Right to Pursue Relief, Always Remember to Assign Title to, Or Ownership in, The Claim

• Posted on: Oct 4 2016

Whether a party has standing to bring a lawsuit is often considered through the constitutional lens of justiciability – that is, whether there is a “case or controversy” between the plaintiff and the defendant “within the meaning of Art. III.” Warth v. Seldin, 422 U.S. 490, 498 (1975). To have Article III standing, “the plaintiff [must have] ‘alleged such a personal stake in the outcome of the controversy’ as to warrant [its] invocation of federal-court jurisdiction and to justify exercise of the court’s remedial powers on [its] behalf.” Id. at 498–99 (quoting Baker v. Carr , 369 U.S. 186, 204 (1962)).

To show a personal stake in the litigation, the plaintiff must establish three things: First, he/she has sustained an “injury in fact” that is both “concrete and particularized” and “actual or imminent.” Lujan v. Defenders of Wildlife , 504 U.S. 555, 560 (1992) (internal quotation marks omitted). Second, the injury has to be caused in some way by the defendant’s action or omission. Id . Finally, a favorable resolution of the case is “likely” to redress the injury. Id . at 561.

When a person or entity receives an assignment of claims, the question becomes whether he/she can show a personal stake in the outcome of the litigation, i.e. , a case and controversy “of the sort traditionally amenable to, and resolved by, the judicial process.’” Sprint Commc’ns Co., L.P. v. APCC Servs., Inc., 554 U.S. 269, 285 (2008) (quoting Vt. Agency of Natural Res. v. United States ex rel. Stevens, 529 U.S. 765, 777–78 (2000)).

To assign a claim effectively, the claim’s owner “must manifest an intention to make the assignee the owner of the claim.” Advanced Magnetics, Inc. v. Bayfront Partners, Inc. , 106 F.3d 11, 17 (2d Cir. 1997) (internal quotation marks and brackets omitted). A would-be assignor need not use any particular language to validly assign its claim “so long as the language manifests [the assignor’s] intention to transfer at least title or ownership , i.e., to accomplish ‘a completed transfer of the entire interest of the assignor in the particular subject of assignment.’” Id. (emphasis added) (citations omitted). An assignor’s grant of, for example, “‘the power to commence and prosecute to final consummation or compromise any suits, actions or proceedings,’” id. at 18 (quoting agreements that were the subject of that appeal), may validly create a power of attorney, but that language would not validly assign a claim, because it does “not purport to transfer title or ownership” of one. Id.

On September 15, 2016, the New York Appellate Division, First Department, issued a decision addressing the foregoing principles holding that one of the plaintiffs lacked standing to assert claims because the assignment of the right to pursue remedies did not constitute the assignment of claims.  Cortlandt St. Recovery Corp. v. Hellas Telecom., S.à.r.l. , 2016 NY Slip Op. 06051.

BACKGROUND :

Cortlandt involved four related actions in which the plaintiffs – Cortlandt Street Recovery Corp. (“Cortlandt”), an assignee for collection, and Wilmington Trust Co. (“WTC”), an indenture trustee – sought payment of the principal and interest on notes issued in public offerings. Each action alleged that Hellas Telecommunications, S.a.r.l. and its affiliated entities, the issuer and guarantor of the notes, transferred the proceeds of the notes by means of fraudulent conveyances to two private equity firms, Apax Partners, LLP/TPG Capital, L.P. – the other defendants named in the actions.

The defendants moved to dismiss the actions on numerous grounds, including that Cortlandt, as the assignee for collection, lacked standing to pursue the actions. To cure the claimed standing defect, Cortlandt and WTC moved to amend the complaints to add SPQR Capital (Cayman) Ltd. (“SPQR”), the assignor of note interests to Cortlandt, as a plaintiff. The plaintiffs alleged that, inter alia , SPQR entered into an addendum to the assignment with Cortlandt pursuant to which Cortlandt received “all right, title, and interest” in the notes.

The Motion Court granted the motions to dismiss, holding that, among other things, Cortlandt lacked standing to maintain the actions and that, although the standing defect was not jurisdictional and could be cured, the plaintiffs failed to cure the defect in the proposed amended complaint. Cortlandt St. Recovery Corp. v. Hellas Telecom., S.à.r.l. , 47 Misc. 3d 544 (Sup. Ct., N.Y. Cnty. 2014).

The Motion Court’s Ruling

As an initial matter, the Motion Court cited to the reasoning of the court in Cortlandt Street Recovery Corp. v. Deutsche Bank AG, London Branch , No. 12 Civ. 9351 (JPO), 2013 WL 3762882, 2013 US Dist. LEXIS 100741 (S.D.N.Y. July 18, 2013) (the “SDNY Action”), a related action that was dismissed on standing grounds.  The complaint in the SDNY Action, like the complaints before the Motion Court, alleged that Cortlandt was the assignee of the notes with a “right to collect” the principal and interest due on the notes. As evidence of these rights, Cortlandt produced an assignment, similar to the ones in the New York Supreme Court actions, which provided that as the assignee with the right to collect, Cortlandt could collect the principal and interest due on the notes and pursue all remedies with respect thereto. In dismissing the SDNY Action, Judge Oetken found that the complaint did not allege, and the assignment did not provide, that “title to or ownership of the claims has been assigned to Cortlandt.” 2013 WL 3762882, at *2, 2013 US Dist. LEXIS 100741, at *7. The court also found that the grant of a power of attorney (that is, the power to sue on and collect on a claim) was “not the equivalent of an assignment of ownership” of a claim. 2013 WL 3762882 at *1, 2013 US Dist. LEXIS 100741 at *5. Consequently, because the assignment did not transfer title or ownership of the claim to Cortlandt, there was no case or controversy for the court to decide ( i.e. , Cortlandt could not prove that it had an interest in the outcome of the litigation).

The Motion Court “concur[red] with” Judge Oeken’s decision, holding that “the assignments to Cortlandt … were assignments of a right of collection, not of title to the claims, and are accordingly insufficient as a matter of law to confer standing upon Cortlandt.”  In so holding, the Motion Court observed that although New York does not have an analogue to Article III, it is nevertheless analogous in its requirement that a plaintiff have a stake in the outcome of the litigation:

New York does not have an analogue to article III. However, the New York standards for standing are analogous, as New York requires “[t]he existence of an injury in fact—an actual legal stake in the matter being adjudicated.”

Under long-standing New York law, an assignee is the “real party in interest” where the “title to the specific claim” is passed to the assignee, even if the assignee may ultimately be liable to another for the amounts collected.

Citations omitted.

Based upon the foregoing, the Motion Court found that Cortlandt lacked standing to pursue the actions.

Cortlandt appealed the dismissal. With regard to the Motion Court’s dismissal of Cortlandt on standing grounds, the First Department affirmed the Motion Court’s ruling, holding:

The [IAS] court correctly found that plaintiff Cortlandt Street Recovery Corp. lacks standing to bring the claims in Index Nos. 651693/10 and 653357/11 because, while the assignments to Cortlandt for the PIK notes granted it “full rights to collect amounts of principal and interest due on the Notes, and to pursue all remedies,” they did not transfer “title or ownership” of the claims.

The Takeaway

Cortlandt limits the ability of an assignee to pursue a lawsuit when the assignee has no direct interest in the outcome of the litigation. By requiring an assignee to have legal title to, or an ownership interest in, the claim, the Court made clear that only a valid assignment of a claim will suffice to fulfill the injury-in-fact requirement. Cortlandt also makes clear that a power of attorney permitting another to conduct litigation on behalf of others as their attorney-in-fact is not a valid assignment and does not confer a legal title to the claims it brings. Therefore, as the title of this article warns: when assigning the right to pursue relief, always remember to assign title to, or ownership in, the claim.

Tagged with: Business Law

By Katie E. Brach

In the context of large construction defect litigation, we are seeing more partial settlement strategies involving assignments of claims.  The most common is when the Developer/General Contractor agrees as part of a partial global settlement to assign its indemnity claims against one or more of the Non-Settling Subcontractor Cross-Defendants to the Plaintiff.  In theory, this type of settlement arrangement is beneficial to both the Developer/General Contractor and the Homeowner/Association Plaintiff because it allows the General Contractor to settle out around a stubborn or non-contributing subcontractor without having exposure to the fees and costs associated with a voluntary dismissal of its Cross-Complaint, and it provides the Plaintiff with additional damage claims and an avenue for recovery of attorney’s fees under the assigned subcontract(s).  This type of settlement is also designed to put additional pressure on the non-settling Subcontractor(s) by leaving them exposed to the balance of Plaintiff’s and General Contractor’s claims and essentially placing them in the position of the “last defendant standing” in Plaintiff’s game of musical chairs.  While this strategy may have its advantages in pressuring global resolution, the procedural implications of such a deal (if not properly executed) can be problematic if the case ultimately proceeds to trial.  Therefore, it is important that counsel on both sides carefully consider the terms of any proposed settlement with an assignment before making such a commitment.

First, it is likely the settlement will need to be subject to the Court declaring it in good faith pursuant to Code of Civil Procedure section 877 et seq., which means that a valuation will have to be placed on the assignment. In the context of proving whether the settlement is in “good faith” pursuant to CCP §887.6, the value of the assigned rights is not necessarily going to be the total amount of recoverable damages assigned. In California, the Courts have approved valuations of assigned rights at 20% of the total recoverable value for those rights.   See   Erreca’s v. Superior Court , (1993) 19 Cal.App.4th 1475.  In  Errecas’s , the discounted value was deemed reasonable to account for unknown factors such as the cost of prosecuting the claims, the probability of prevailing on the claims, the likelihood of collecting on any potential judgment, and the increased difficulty in proving a negligence claim as opposed to a strict liability claim.  Id.  at 1496-1499. In addition to placing a value on the assignment, the monetary portion of the settlement will need to be allocated amongst Plaintiff’s claims in support of any good faith motion.  The allocations and value of the assignment will inevitably play a critical role down the road with respect to Plaintiff’s ultimate recovery against the Non-Settling Subcontractors on its direct claims, so Plaintiff and the Non-Settling Subcontractor(s) should be mindful of the arguments they make during the good faith process because those same arguments will apply to the potential off sets available in relation to future jury verdicts or judgments.

Second, if the General Contractor’s Cross-Complaint is being assigned to Plaintiff, all parties need to be cognizant of the application of the assignment, and change in party positions, with relation to the pleadings on file.  Pursuant to Cal. Code Civ. Proc. §368.5, when claims are assigned during a pending action, the action “may be continued in the name of the original party, or the court may allow the person to whom the transfer is made to be substituted in the action or proceeding.”  Therefore, Plaintiff has the option of continuing the prosecution of the General Contractor’s Cross-Complaint against the Non-Settling Subcontractors in the name of the General Contractor, or the Plaintiff can seek to be substituted in as Cross-Complainant in place of the General Contractor.  No action by the Court is required to continue a case in the name of the original party after an assignment of interest in the action.  Cleverdon v. Gray,  (1944) 62 Cal.App.2d 612, 616.  However, if the Plaintiff wants to be substituted in place of the General Contractor, the Plaintiff must bring a motion to the Court to obtain an order for the substitution and seek leave to file a supplemental Cross-Complaint to allege the assignment and substitution.  It is within the trial court’s discretion whether or not to allow the substitution.  Alameda County Home Inv. Co v. Whitaker,  (1933) 217 Cal. 231, 234.

Third, a change in counsel may be necessary and further actions by the General Contractor may be required. In the event of a transfer of interest in a pending action, the attorney for the nominal party/assignor does not automatically cease to be the attorney of record.  Casey v. Overhead Door Corp.,  (1999) 74 Cal.App.4th 112.  If the Plaintiff is going to continue to prosecute the Cross-Complaint in the name of the General Contractor, the Plaintiff’s attorney should substitute in as the attorney of record for the General Contractor (after Plaintiff dismisses its Complaint as to the General Contractor, of course). This is something that counsel for the General Contractor should discuss with his or her client when contemplating an assignment.  The General Contractor should be aware that Plaintiff’s Counsel, who was actively prosecuting claims against the General Contractor, could potentially become the General Contractor’s counsel of record. While control of the continued litigation of the Cross-Complaint will rest solely with the Plaintiff, the General Contractor remains a nominal party to the action with exposure to the potential entry of an adverse judgment against it.  Union Bank v. County of Los Angeles,  (1963) 223 Cal.App.2d 687.

Although the assignment will likely include an assumption by Plaintiff of all liability in connection with the continued prosecution of the Cross-Complaint, including responsibility for all orders and/or judgments entered for or against General Contractor, further legal action by the General Contractor may be required to enforce the provisions of the assignment in the event of an adverse ruling.  Conversely, further legal action by Plaintiff may be required to enforce the provisions of the assignment in the event General Contractor refuses to cooperate with Plaintiff’s requests for assistance in the form of witness testimony or documentation in support of the Cross-Complaint.

In short, an assignment of claims during the pendency of litigation can be a powerful tool in negotiating a settlement, but any counsel recommending an assignment must make sure they fully understand the terms of the assignment and advise their clients of the risks and benefits associated with such an agreement.  For more information regarding assignment of claims, contact Partner Katie Brach in LGC’s San Diego office.

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Bush v. Superior Court (Rains) (1992)

WILLIAM BUSH et al., Petitioners, v. THE SUPERIOR COURT OF SACRAMENTO COUNTY, Respondent; D. W. RAINS et al., Real Parties in Interest.

(Superior Court of Sacramento County, No. 516498, Joe S. Gray, Judge.)

(Opinion by Blease, Acting P. J., with Sims and Scotland, JJ., concurring.) [10 Cal. App. 4th 1375]

Wilke, Fleury, Hoffelt, Gould & Birney, Philip R. Birney, Peter J. Pullen, Hardy, Erich, Brown & Wilson and John Quincy Brown III for Petitioners.

No appearance for Respondent.

Shernoff, Bidart & Darras, Randy D. Curry and William M. Shernoff for Real Parties in Interest.

BLEASE, Acting P. J

In this mandamus proceeding we decide that plaintiffs (the Rains) may settle their claims against one concurrent tortfeasor by taking as part of the settlement an assignment of that tortfeasor's American Motorcycle fn. 1 claim for equitable indemnity against other concurrent tortfeasors. The petitioners are defendants in an action brought by the Rains as assignees of the American Motorcycle claim. Petitioners seek relief from the overruling of their demurrers. They say the assignment violates public policy and the action should be abated because there is another action pending on the same cause of action, the Rains' personal injury tort action against them. We issued an alternative writ of mandate to consider the novel questions of law posed.

We will deny the petition. The California rule is that a chose in action is presumptively assignable ( Civ. Code, §§ 953, 954) and petitioners have shown no good reason why they should be excepted from its application.

Petitioners' most troublesome claim is that if the Rains prevail in both the indemnity and tort actions they will recover more than full compensation for their injuries because the assignment has value only if the settling tortfeasor paid more for the Rains' injuries than is warranted by its comparative share of fault. The rhetorical force of this argument lies in the failure to recognize that in the indemnity action the Rains stand in the shoes of the settling party; it is the settling party's money that is in issue. If the assignment has value it is the petitioners who seek a windfall, an offset of the excess paid by the settling party which is attributable to petitioners' share of fault.

Thus, we will reject petitioners' claim for two reasons. First, if such a recovery occurs it will not be at the expense of petitioners-the most they [10 Cal. App. 4th 1379] will be asked to bear is "liability for damage ... in direct proportion to their respective fault," the same exposure to liability that existed before the assignment. (Li v. Yellow Cab Co. (1975) 13 Cal. 3d 804 , 813 [119 Cal. Rptr. 858, 532 P.2d 1226, 78 A.L.R.3d 393], italics added.) The Rains would receive by means of the assignment only that to which the settling tortfeasor was entitled. Second, the policy against overcompensation does not outweigh the policy of fostering settlement which is advanced by permitting such an assignment.

Facts and Procedural Background

In light of the generic nature of petitioners' claims the necessary background may be stated briefly. After their home burned, D. W. and O. L. Rains, real parties in interest, sued their fire insurance carrier, State Farm Fire and Casualty Insurance Company (State Farm), alleging that in bad faith it failed to pay benefits due them under the insurance policy and that O. L. Rains suffered consequential and severe emotional distress. In a separate action O. L. Rains sued petitioners Robert Wright and William Bush for medical malpractice and American Therapeutics, Inc., for products liability alleging that permanent physical injuries arose from the side effects of a drug prescribed in the treatment of the emotional distress.

The Rains settled the bad faith action with State Farm for $1,750,000 and an assignment of its claims against the petitioners and American Therapeutics, Inc., for equitable indemnity. The Rains then filed the complaint in this action for the amount paid by State Farm to them which is attributable to petitioners' comparative fault. Petitioners demurred on grounds that the complaint failed to state a cause of action and that there is another action pending between the same parties on the same cause of action. The superior court overruled the demurrers.

Introduction

In Li v. Yellow Cab Co., supra, 13 Cal. 3d 804 , the California Supreme Court discarded the common law rule under which a plaintiff's contributory negligence barred recovery in tort. It adopted a rule of comparative negligence, "a system under which liability for damage will be borne by those whose negligence caused it in direct proportion to their respective fault." (Id. at p. 813, fn. omitted.) In American Motorcycle, supra, 20 Cal. 3d 578 , it discarded the analogous all-or-nothing cause of action for equitable indemnity between tortfeasors and replaced it with a rule of partial indemnity. "In [10 Cal. App. 4th 1380] order to attain [the system envisioned in Li], in which liability for an indivisible injury caused by concurrent tortfeasors will be borne by each individual tortfeasor 'in direct proportion to [his] respective fault,' we conclude that the current equitable indemnity rule should be modified to permit a concurrent tortfeasor to obtain partial indemnity from other concurrent tortfeasors on a comparative fault basis." (Id. at p. 598.)

The issues are whether such a cause of action lawfully may be assigned to the plaintiff, and if so, whether an action upon the assignment can be maintained when the plaintiff is also suing other concurrent tortfeasors on the underlying tort. Petitioners contend that in these circumstances an action on the assignment would offend traditional principles of equity and indemnity and violate public policy.

A. An American Motorcycle Claim Is Assignable to a Third Party.

[1] The right to equitable indemnity stems from the principle that one who has been compelled to pay damages which ought to have been paid by another wrongdoer may recover from that wrongdoer. [2a] Petitioners argue that the Rains' complaint is deficient because it fails to plead that they were compelled to pay damages. The argument neglects the elementary consideration that an assignee of a chose in action does not sue in his own right but stands in the shoes of the assignor. (See, e.g., Brown v. Guarantee Ins. Co. (1957) 155 Cal. App. 2d 679 , 695-696 [319 P.2d 69, 66 A.L.R.2d 1202].) A thing or chose in action would never be assignable if the assignee independently had to meet the requirements already satisfied by the assignor. If he could meet the requirements he would need no assignment; if not he could not use the assignment.

Under the early English common law the doctrines of champerty and maintenance prohibited an assignment of a chose in action. (See, e.g., 14 Am.Jur.2d, Champerty and Maintenance, § 1, p. 842.) In California this common law doctrine has been superceded by statute. [3] " [S]ections 953 and 954 of the Civil Code [of 1872] have lifted many of the restrictions imposed by the rule of the common law upon this subject." (Wikstrom v. Yolo Fliers Club (1929) 206 Cal. 461, 464 [274 P. 959]; Jackson v. Deauville Holding Co. (1933) 219 Cal. 498, 501 [27 P.2d 643].) These presently provide: "A thing in action is a right to recover money or other personal property by a judicial proceeding." ( Civ. Code, § 953.) "A thing in action, arising out of the violation of a right of property, or out of an obligation, may be transferred by the owner." ( Civ. Code, §§ 954, 1458.) [10 Cal. App. 4th 1381]

These statutes establish the policy of the state, the " 'assignability of things [in action] is now the rule; nonassignability, the exception; and this exception is confined to wrongs done to the person, the reputation, or the feelings of the injured party. ...' " (Webb v. Pillsbury (1943) 23 Cal. 2d 324 , 327 [144 P.2d 1, 150 A.L.R. 504], brackets in Webb; see also Wikstrom, supra, 206 Cal. at p. 463; Jackson, supra, 219 Cal. at p. 500.) [2b] For this reason it is petitioners' burden to show that some exception to the rule applies in this case. They fail to do so.

They argue that no precedent has "authorized" a plaintiff in a tort action to acquire an American Motorcycle claim by assignment. They offer nothing to suggest that such a claim is per se unassignable, e.g., unassignable to a bona fide third party purchaser. The thing assigned is not a wrong which is personal to the holder of the right of indemnity, as is shown by analogous rights which have been held assignable. [4] For example, a subrogation right is assignable. (See, e.g., Quinn v. Warnes (1983) 144 Cal. App. 3d 309 [ 192 Cal. Rptr. 660 ], upholding an assignment of subrogation rights by a worker's compensation insurance carrier to the third party tort defendant.)

A subrogation right bears a strong resemblance to the right to equitable indemnity sanctioned by American Motorcycle.

"Subrogation is an equitable remedy which arises under the following basic circumstances: (1) The obligor (defendant) owes a debt or duty of some kind to the creditor (subrogor). (2) The subrogee (plaintiff), pursuant to his own obligation to the creditor, pays that debt or discharges that duty. (3) These circumstances make it inequitable that the subrogee should bear the loss while the obligor is unjustly enriched." (4 Witkin, Cal. Procedure (3d ed. 1985) Pleading, § 112, p. 147, original italics.) Under American Motorcycle the tortfeasor from whom the plaintiff first recovers is in effect a subrogee, entitled to recover insofar as it has borne liability for damages attributable to the fault of other concurrent tortfeasors.

Another analogous remedy is contribution. (See 4 Pomeroy, Equity Jurisprudence (5th ed. 1941) § 1416, p. 1070.) While we have found no California authority on point, out-of-state cases hold that such a chose in action is assignable. (See, e.g., McKay v. Citizens Rapid Transit Co. (1950) 190 Va. 851 [59 S.E.2d 121, 20 A.L.R.2d 918].)

[2c] Thus, if the assignment of an American Motorcycle claim offends traditional doctrines of indemnity it must arise from the status of the assignee as the plaintiff in the tort action rather than the fact of assignment per se. [10 Cal. App. 4th 1382] B. Assignment of an American Motorcycle Claim to a Tort Plaintiff Offends No Traditional Principle of Indemnity.

The Rains rely on Fortman v. Safeco Ins. Co. (1990) 221 Cal. App. 3d 1394 [ 271 Cal. Rptr. 117 ] as a precedent upholding an "assignment of a cause of action for equitable indemnity" to the tort plaintiff. In that case the plaintiff in a tort action settled with the defendant and his excess insurance coverage carrier; the latter settlement was for $1,125,000 of its $2 million policy limits and an assignment of its equitable subrogation claim against the defendant's primary insurer. The primary insurer had repeatedly rejected settlement offers within the primary insurance policy limits. (Id. at pp. 1396-1397.) While Fortman is an example of an assignment of a subrogation claim to the original obligor, it furnishes little precedential support because the issue whether such an assignment could be made was not discussed.

[5] (See fn. 2.) However, Fortman does point to a closely related claim as to which assignment to the tort plaintiff has been sanctioned by case law, a first party insurance bad faith claim. fn. 2

"We have thus determined that the insured's cause of action for wrongful refusal to settle could validly pass to the trustee in bankruptcy and be assigned by him to others. Therefore, the complaint states facts sufficient to constitute a cause of action by plaintiff (as successor in interest of the insured) against defendant. This result may seem anomalous in that the plaintiff, who previously offered to settle his claim for $5,000, has now acquired the right to maintain against defendant insurer an action which arose by reason of that offer to settle. But it must be borne in mind that plaintiff merely stands in the shoes of the insured; it is the insured who has allegedly suffered the wrong at the hands of the insurer. It might be said that the result reached herein will cause more injured claimants to propose settlement for the policy limit when the insurance company is defending the action against an insured who is apparently judgment-proof. Yet the insurer has nothing to fear so long as its refusal to settle is made in good faith. And it is fundamental that the law favors settlements." (Brown, supra, 155 Cal.App.2d at pp. 695-696, cited with approval in Comunale v. Traders & General Ins. Co. (1958) 50 Cal. 2d 654 , 661 [328 P.2d 198, 68 A.L.R.2d 883]; also see Critz v. Farmers Ins. Group (1964) 230 Cal. App. 2d 788 [41 Cal. Rptr. 401, 12 A.L.R.3d 1142], upholding against an argument it violates public policy such an assignment made prior to judgment in return for a covenant not to execute on the judgment.) [10 Cal. App. 4th 1383]

A first party bad faith claim for an insurance company's refusal to settle also resembles a subrogation claim. The insured, in suffering an excess judgment or exposure to an excess judgment, is called upon to bear a portion of the tort plaintiff's loss that should have been "borne" by the insurer by accepting the earlier settlement offer within policy limits. Accordingly the insured's incremental loss is shifted to the insurance company obligor.

Petitioners argue that Fortman is inapposite. Presumably they would make the same argument as to first-party insurance bad-faith-claim assignments. Both kinds of claim are related to the plaintiff's underlying tort cause of action. In both the recovery is calculated based on plaintiff's tort damages ascertained at trial. It is true that the conduct of the defendant upon which the bad faith claim is founded differs from that here. In bad faith cases the pertinent conduct is the failure to settle in good faith. In the American Motorcycle context it is the nonsettling defendant's tortious conduct which causes harm to plaintiff, considered in comparison to the culpable conduct of the settling defendant. That is a closer relationship to the issues in the underlying tort action. However, petitioners do not explain why the greater degree of convergence is meaningful.

Petitioners suggest as to a bad faith claim that assignment is permitted in part because it vindicates the policy that insurance companies should fulfill their legal obligations to settle in good faith. However, one might as easily say that the assignment of an American Motorcycle claim vindicates the policies expressed in Li and in the defendant's duty in tort, i.e., that the defendant bear liability for plaintiff's harm in full proportion to the share of fault. Petitioners do not suggest in what manner their arguments bear on "traditional equity and indemnity principles." We find them unpersuasive.

[6a] Petitioners argue that the assignment cannot be upheld because the settlement was collusive as a matter of law, i.e., it "aimed to injure" their interests. However, as we shall show, petitioners are not exposed to any greater liability or burden than would be the case without the assignment.

Lastly, petitioners argue that equitable indemnity will not lie on behalf of a tortfeasor who has intentionally injured the plaintiff and that the Rains pled intentional infliction of emotional distress in their complaint against State Farm. We have no occasion to reach the merits of this claim. The Rains' complaint against State Farm states causes of action for negligent and intentional torts. There is no way at this stage in the proceedings to ascertain the validity of or the weight of these claims. Assuming that recovery is legally barred on this ground the nature of State Farm's conduct is a matter of fact that must be placed in issue in the indemnity action by petitioners' answers. [10 Cal. App. 4th 1384] C. The Demurrers Should Not Have Been Sustained on the Ground of Abatement.

[7a] Petitioners argue that the trial court should have sustained their demurrers because "[t]here is another action pending between the same parties on the same cause of action." ( Code Civ. Proc., § 430.10, subd. (c).) However, the American Motorcycle indemnity action and the plaintiff's tort action are not on the same cause of action.

[8] The identity of two causes of action is determined by a comparison of the facts alleged which show the nature of the invasion of plaintiff's primary right.

"California follows the 'primary right theory' of Pomeroy: 'Every judicial action must therefore involve the following elements: a primary right possessed by the plaintiff, and a corresponding primary duty devolving upon the defendant; a delict or wrong done by the defendant which consisted in a breach of such primary right and duty; a remedial right in favor of the plaintiff, and a remedial duty resting on the defendant springing from this delict, and finally the remedy or relief itself. ... Of these elements, the primary right and duty and the delict or wrong combined constitute the cause of action. ...' " (4 Witkin, Cal. Procedure, supra, Pleading, § 23, pp. 66-67, original italics.)

[7b] The primary right in O. L. Rains's tort action is his right to freedom from bodily harm caused by negligence. The primary right in the American Motorcycle indemnity action is State Farm's right to freedom from disproportionate liability for damages attributable to the negligence of the concurrent tortfeasors. These are different primary rights. Even as pled the tort actions against State Farm and petitioners are based upon different causes of action. (See Ash v. Mortensen (1944) 24 Cal. 2d 654 , 657 [150 P.2d 876].)

Petitioners argue that the causes of action are identical because a finding in either action on a petitioner's negligence would be res judicata in the other action. That is not correct. It rests on a confusion between issue and claim preclusion. (See Rest.2d Judgments, §§ 17-19, 27.) A finding in either action would give rise to collateral estoppel, or issue preclusion. But, because the causes of action are not the same, it would not give rise to res judicata or claim preclusion.

[9] That brings us to petitioners' facially appealing argument-that the Rains should not be permitted to maintain the action on the assignment [10 Cal. App. 4th 1385] because if they prevail O. L. Rains will obtain more than full compensation for his damages. Petitioners correctly note that neither equitable indemnity nor assignments of choses in action are permitted in derogation of public policy. (See, e.g., Platt v. Coldwell Banker Residential Real Estate Services (1990) 217 Cal. App. 3d 1439 , 1444-1445 [ 266 Cal. Rptr. 601 ].) They submit that the prospect of excess recovery must be nipped in the bud on this ground. We disagree. As in Brown, supra, 155 Cal. App. 2d 697 , we accept the anomaly because the petitioners ought not profit from their wrong and because it advances another public policy-the fundamental policy that the law favors settlements.

There is a possibility of recovery greater than the full measure of damages in tort. If O. L. Rains prevails in the American Motorcycle action he will also recover in his tort action, barring some procedural misadventure. O. L. Rains's recovery in the tort actions against petitioners and American Therapeutics, Inc., cannot exceed the amount of his damages less the portion of the State Farm settlement attributable to those damages. ( Code Civ. Proc., § 877, subd. (a).) The aggregate recovery in the tort actions will equal his damages. Hence, a recovery in the American Motorcycle action would provide him with something more than the amount of his total tort damages as measured by the litigation.

Petitioners rely on the general principle which opposes the granting of relief where the result is a recovery greater than one full measure of compensation. (See, e.g., Ash, supra, 24 Cal. 2d 654 ; 6 Witkin, Summary of Cal. Law (9th ed. 1988) Torts, § 1322, p. 779.) They cite to Hartley v. St. Francis Hospital (1964) 24 Wis.2d 396 [129 N.W.2d 235], opinion on denial of rehearing (1964) 130 N.W.2d 1, as a precedent for applying this principle to bar the assignment here.

In Hartley the tort plaintiff was crushed by a truck and in the course of treatment he was reinjured by an employee of St. Francis Hospital. Plaintiff settled his action with the truck owner for the liability insurance policy limits and a promissory note, aggregating far less than his claimed damages. He did so by means of a general release in which he failed to reserve explicitly his right to sue the hospital. The "major issue" was whether this settlement barred his tort claim on the theory it was conclusively presumed that the settlement included compensation for the medical malpractice injuries. (24 Wis.2d at p. 400.) The Hartley court held that the claim was barred under the now discredited common law rule that a release discharges the liability of concurrent tortfeasors. (See e.g., Milicevich v. Sacramento Medical Center (1984) 155 Cal. App. 3d 997 , 1006, fn. 12 [ 202 Cal. Rptr. 484 ]; Prosser & Keeton, Torts (5th ed. 1984) pp. 332-334.) The Wisconsin Supreme Court overruled Hartley on this point in Krenz v. Medical Protective Co. of Fort Wayne, Ind. (1973) 57 Wis.2d 387 [ 204 N.W.2d 663 ].) [10 Cal. App. 4th 1386]

The minor issue in Hartley arose out of the plaintiff's efforts to cure the misstep which had doomed his tort claim under the application of the common law rule. Seven months after his ill-advised settlement the plaintiff obtained from the truck owner's insurance company an assignment of any claim for damages it might have had against the hospital and he sought to recover under the assignment. (24 Wis.2d at p. 398.) The Hartley court was not receptive to this stratagem for avoiding the strictures of the common law rule. While perplexed as to the nature of the chose in action assigned (originally viewed as a question of indemnity but changed to subrogation on rehearing), the court refused to sanction the assignment because the settlement and release had fixed the value of his damages at $25,000 and it would be contrary to public policy to allow him a further recovery.

In Krenz, supra, the court suggested that Hartley's original characterization of the chose in action as sounding in indemnity was analytically embarrassing. "If, however, the right of the first tortfeasor were simply based upon his payment of a claim, part of which the doctor should have paid, the first tortfeasor's right against the doctor logically would not have been derived from the injured party but would be one of indemnity. This theory, while adopted in the opinion of the court, was repudiated on rehearing and the subrogation theory that the first tortfeasor in the settlement acquired the right of the injured party to sue the doctor was adhered to." (204 N.W.2d at p. 669.)

The force of Hartley, as a precedent on the point for which petitioners cite it, is diminished by its argumentative shortcomings and reliance on a common law rule which has now been repudiated in Wisconsin. Under California law the Rains' chose in action is not predicated upon the subrogation of their cause of action, but upon equitable indemnity, the assignment of State Farm's payment of a claim which petitioners ought to have paid. Aside from these analytic concerns, the facts of this case critically differ from those in Hartley.

The assignment of State Farm's American Motorcycleequitable indemnity claim occurred as a part of the consideration for a settlement. California has a strong public policy in favor of encouraging settlement. (See, e.g., American Motorcycle, supra, 20 Cal.3d at p. 603; Milicevich, supra, 155 Cal.App.3d at p. 1006; Brown, supra, 155 Cal.App.2d at p. 696.) Sanctioning the assignment of an American Motorcycle chose in action to the tort plaintiff fosters settlement with the tortfeasor most willing to settle. In this case the [10 Cal. App. 4th 1387] assignment appears to have been a valuable consideration to the Rains, since they bargained for it in the settlement agreement. fn. 2

We do not disagree with the public policy that, all things being equal, the plaintiff should recover no more than full compensation for an injury. A cause of action is not a lottery ticket. But, as with every such policy, the policy against excess recovery must be balanced against other germane public policies. (See Roe v. Workmen's Comp. Appeals Bd. (1974) 12 Cal. 3d 884 , 888 [117 Cal. Rptr. 683, 528 P.2d 771].) In Roe, for example, the Supreme Court held that, despite the policy against excess recovery, a workers' compensation insurance carrier could not obtain a credit before the Workers' Compensation Appeals Board, notwithstanding a full third party recovery, if the employer had been negligent.

[10] California law, in the main, adheres to the collateral source rule. (See, e.g., Helfend v. Southern Cal. Rapid Transit Dist. (1970) 2 Cal. 3d 1 , 10-14 [84 Cal. Rptr. 173, 465 P.2d 61, 77 A.L.R.3d 398]; 6 Witkin, Summary of Cal. Law, op. cit. supra, Torts, §§ 1388-1396.) In part this is justified on the ground that, because the injured plaintiff must bear its own attorney fees, the plaintiff rarely receives full compensation for the injuries as computed by the jury in the tort action. (Helfend, 2 Cal.3d at pp. 12-13.) This consideration is applicable here. [6b] A further consideration is that, "[i]n any event, it is clear the possibility of a double recovery in favor of [plaintiff] will not impose a double burden on [the tortfeasor who] bears responsibility only for the single burden of his wrong." (Phillip Chang & Sons Associates v. La Casa Novato (1986) 177 Cal. App. 3d 159 , 170 [ 222 Cal. Rptr. 800 ].)

In this case petitioners, if liable, are subject to damages in the tort action by O. L. Rains measured by his total damages minus the value of the portion of the State Farm settlement attributable to those damages. In the American [10 Cal. App. 4th 1388] Motorcycle assignment action the measure of exposure is the value of the portion of the State Farm settlement attributable to O. L. Rains's tort damages minus State Farm's proportional share of those damages. The result is that the maximum aggregate exposure for each petitioner is O. L. Rains's total tort damages times each petitioner's share of fault-or as American Motorcycle has it, the "liability ... borne by each individual tortfeasor 'in direct proportion to [his] respective fault ....' " (20 Cal.3d at p. 598.) As to petitioners this presents no unfairness.

As Roe, supra, explains, the policy against excess recovery is primarily designed to prevent the imposition of a disproportionate burden on the protected tortfeasor. (12 Cal.3d at p. 889.) When one who is asked to bear no more than his or her proportionate share raises this shield he or she implicitly complains on behalf of another tortfeasor who has borne a disproportionate share. This prompts the rhetorical question: " 'What's Hecuba to him or he to Hecuba, that he should weep for her?' " (Ibid.) Petitioners offer no persuasive argument why they should be allowed to impugn State Farm's settlement and assignment on the ground that State Farm may have borne more than its proportionate share of liability. (Compare 12 West's U.Laws Ann. (1992 pocket pt.) Comparative Fault Act, § 6: settlement does not release other tortfeasors, "However, the claim of the [tort plaintiff] against other persons is reduced by the amount of the released person's equitable share of the obligation ....")

For all of the foregoing reasons, we conclude that the trial court did not err in overruling petitioners' demurrers. The alternative writ is discharged. The petitions are denied.

Sims, J., and Scotland, J., concurred.

FN 1. American Motorcycle Assn. v. Superior Court (1978) 20 Cal. 3d 578 [146 Cal. Rptr. 182, 578 P.2d 899].

FN 2. Such a claim is not fully assignable. The part of the claim, if any, for the insured's emotional distress or punitive damages cannot be assigned. (Murphy v. Allstate Insurance Co. (1976) 17 Cal. 3d 937 , 942 [132 Cal. Rptr. 424, 553 P.2d 584].)

FN 2. Of course, if the Rains prevail on the American Motorcycle cause of action then State Farm gave up something of additional value by agreeing to its assignment. However, the tort plaintiff might place a greater value on the American Motorcycle chose in action than the settling tortfeasor. This could result from a different evaluation of various matters, e.g., the strength of the case against other alleged tortfeasors.

In the kind of case presented here the tort plaintiff may more strongly desire the assignment to eliminate the settling tortfeasor as a future adversary. If there is no assignment State Farm and the Rains have adverse interests after the settlement. To maximize its American Motorcycle recovery State Farm would have an interest in maximizing the amount of the settlement that will be attributed to damages for which it shares responsibility with petitioners. The Rains would have the opposite interest since O. L. Rains's recovery in tort is inversely proportioned to that amount. Petitioners could reasonably insist that these matters be adjudicated in one proceeding to prevent, different answers to this question. But that would effectively place State Farm and the Rains as litigation adversaries despite their settlement.

Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.

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How to Assign a California Judgment?

On Behalf of The Law Offices of Ronald P. Slates, P.C. | Jul 31, 2022 | Debt Collection

Under California law, a judgment creditor may assign a judgment to a third person. Cal. Civ.Code 954. “In doing so, the judgment creditor assigns the debt upon which the judgment is based … Through such an assignment, the assignee ordinarily acquires all the rights and remedies possessed by the assignor for the enforcement of the debt, subject, however, to the defenses that the judgment debtor had against the assignor.” Great W. Bank v. Kong, 90 Cal. App.4th 28, 108 Cal.Rptr.2d 266, 268 (2001) (internal citations omitted). An assignment carries the legal title to the judgment; “the transfer of the title does not depend upon the fact of there being a valuable consideration.” Curtin v. Kowalsky, 145 Cal. 431, 78 P. 962, 963 (1904)”

The person assigning the judgment (the seller) to you (the buyer) must sign the form in the presence of a notary. The form must be signed and stamped by the notary. Once this is done, the form becomes the original that the court needs. Make one copy of it if you are bringing it to the court, and two copies if you are mailing to the court (in case the original gets lost in the mail). Under CCP § 673(b), “an acknowledgment of assignment of judgment shall contain all of the following:

• The title of the court where the judgment is entered and the cause and number of the action.
• The date of entry of the judgment and of any renewals of the judgment and where entered in the records of the court.
• The name and address of the judgment creditor and name and last known address of the judgment debtor.
• A statement describing the right represented by the judgment that is assigned to the assignee.
• The name and address of the assignee.”

Be sure to serve a copy of the Acknowledgement to the Judgment debtor. For more information on commercial collections and Judgment enforcement, contact the Law Offices of Ronald P. Slates today.

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California Causes of Action

Table of Contents

• Chapter 1 Negligence
• Chapter 2 Emotional Distress
• Chapter 3 Physical Torts
• Chapter 4 Procedural Torts
• Chapter 5 Fraud and Negligent Misrepresentation
• Chapter 6 Products Liability and Commercial Sales
• Chapter 7 Debtor/Creditor: Fraudulent Transfers
• Chapter 8 Business Torts and Actions
• Chapter 9 Real Property Torts
• Chapter 10 Real Estate Broker, Escrow Agent and Notary Liability
• Chapter 11 Contract Actions
• Chapter 12 Defamation and Privacy
• Chapter 13 Insurance
• Chapter 14 Employment
• Chapter 15 Intellectual Property
• Chapter 16 Animal Torts
• Chapter 17 Industrial Injury/Third Party Cases
• Chapter 18 Governmental Tort Liability
• Chapter 19 Wrongful Death/Survival Actions
• Chapter 20 Family Law
• Chapter 21 Defenses

This edition of  California Causes of Action  includes new and updated case law and text throughout the book and 9 new sample complaints. The highlights include:

CHAPTER 1 NEGLIGENCE

Elder and Dependent Adult Abuse

• Distinguishing and defining physical elder abuse and financial elder abuse
• Proof required to establish “recklessness,” “oppression”, “fraud,” and “malice”
• Pleading a causal link between the neglect and the injury, so as to recover enhanced damages

CHAPTER 2 EMOTIONAL DISTRESS

• Establishing a breach of duty owed to direct victim
• Viability of a claim for negligent infliction of emotional distress claims by plaintiffs who witness acts of medical negligence

CHAPTER 12 DEFAMATION AND PRIVACY

• Plaintiff’s burden of proving actual malice when plaintiff is a public figure
• Establishing a level of public activity that elevates a person to public figure status

Intrusion [Invasion of Privacy]

• Establishing a cause of action pursuant to Civil Code §1708.85
• Court’s obligation toward the plaintiff to keep the matter confidential in a Civil Code §1708.85 case

CHAPTER 13 INSURANCE

• Types of claims that can and cannot be assigned
• Enforceability of an “escape clause” between two primary insurers

CHAPTER 19 WRONGFUL DEATH/SURVIVAL ACTIONS

• Viability of claims involving a putative spouse, children of putative spouse, stepchildren or parents

9 NEW SAMPLE COMPLAINTS

• Legal Malpractice
• Negligent Infliction of Emotional Distress – Bystander
• Age Discrimination
• Breach of Contract; Negligent Interference with Prospective Economic Advantage; Violation of Business and Professions Code §17200; Unjust Enrichment
• Wrongful Termination in Violation of Public Policy – National Origin Harassment
• Civil Rights Violations and  Monell  Claim
• Negligence – Personal Injuries
• Negligent Infliction of Emotional Distress – Direct Victim
• Wrongful Termination in Violation of Public Policy – Retaliation; Harassment and Related Causes of Action
• Wrongful Death

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Filing a Complaint to Start a Civil Lawsuit in California

This Guide provides general information and resources pertaining to filing a civil lawsuit in Sacramento County Superior Court . The steps for filing a lawsuit in other counties, small claims court, family law, probate, or a federal court are not discussed in this Guide.

Forms you may need

All cases require a Complaint. [1] In some cases, there is a fill-in-the-blanks Judicial Council form to use; in other cases, you must research and type your Complaint on 28-line pleading paper. See Step 2 below for more information about selecting complaint forms.

In addition to the Complaint, the Judicial Council forms commonly used when filing a lawsuit are:

• Civil Case Cover Sheet ( CM-010 )
• Summons ( SUM-100 )
• Alternative Dispute Resolution Information Package ( CV\E–100 )

The Sacramento County Superior Court requires two additional forms in unlimited civil cases only :

• Stipulation and Order to Mediation – Unlimited Civil ( CV-E-179 )
• Program Case Notice for Unlimited ( CV\E-143U )

Other counties may have different requirements. Check their Local Rules for information.

Steps required to file a lawsuit

Filing a lawsuit with the court is the first step any plaintiff in a civil case must take to ask the court to decide a dispute. These first papers filed with the court identify who you are suing, the basis for your lawsuit, and the court in which your lawsuit is filed. When you file the paperwork and pay the fee, the court creates a file for your case, and issues a case number.

Research your case

Prior to starting your lawsuit, you will need to research the laws related to your situation. It is essential that you research these issues, because the answers you find will help you select the proper forms or documents to start your case; determine the court where you will file your case; and identify who to name as the defendant(s) in your lawsuit. Some of the legal issues you will want to research include:

Causes of action (legal grounds for your lawsuit)

In every lawsuit, there must be at least one legal cause of action. A cause of action is the specific legal claim for which the plaintiff seeks compensation. In other words, the cause of action is the legal reason why the defendant owes the plaintiff money or other compensation. There are hundreds of available causes of action; you will want to thoroughly research your case, to ensure you’re including all the applicable causes of action.

Every cause of action comprises several “elements,” each of which you will need to prove to win your case. When researching and selecting your causes of action, you will need to pay careful attention to these elements, to determine if you have the facts and evidence necessary to prove each element.

Statutes of limitation (deadline to file the case)

A lawsuit must be filed within a limited amount of time of whatever wrongdoing is alleged in the lawsuit. This deadline is referred to as the statute of limitations. Most of these limitations are defined in the  California Code of Civil Procedure (CCP) §§ 335-366.3 .

The statute of limitations for several common causes of action in California include:

• Personal injury or wrongful death: 2 years (CCP § 335.1).
• Damage to personal property: 3 years (CCP § 338).
• Breach of a written contract: 4 years (CCP § 337).
• Breach of an oral contract: 2 years (CCP § 339).

Determining the appropriate statute of limitations in a case can be deceptively complex. Additionally, research is often required to determine the exact date the statute started running.

Additional restrictions exist if the defendant is a government entity, as government entities and their employees are generally immune from lawsuits that seek damages. In some cases the government is required to waive this immunity, but only if a prospective plaintiff timely files an appropriate claim under the  California Government Claims Act  ( Govt. Code §§ 900  et seq . ). The time limit to file a claim is often much shorter than the statute of limitations for a private individual, typically six months or less. For more information, see our article Claims Against the Government .

Because the failure to file within the statute of limitations or failure to file a required claim in a timely manner is usually fatal to a case, one of your first research goals should be to determine the applicable statute limitations and whether a claim requirement exists in your case.

For more information on researching and calculating statutes of limitations, see our article on Statutes of Limitation .

Venue (choosing the correct court)

As a plaintiff, you have the ability to choose to file a lawsuit, and some degree of choice over where the lawsuit is filed. Typically, a lawsuit is filed in your choice of:

• The county where the real property ( i.e . land) that is the subject of the lawsuit is located ( CCP § 392 );
• The county where the accident or other wrongdoing that is the subject of the lawsuit took place ( CCP § 393 );
• The county where any defendant lives at the time the lawsuit is filed ( CCP § 395 );
• The county where the contract that is the subject of the lawsuit was to be performed ( CCP § 393 ); or
• The county where defendant corporation, LLC, or other business entity has its principal place of business ( CCP § 395.5 ).

A contract may also specify the court that will hear any disputes related to the contract.

If the lawsuit arises out of a loan or other extension of credit that was primarily for:

• personal or household use ( CCP § 395(b) ),
• a retail installment contract ( Civil Code § 1812.10 ),
• a financed automobile ( Civil Code § 2984.4 ),

the plaintiff must file and serve a Declaration or Statement of Venue, stating the facts that allow the case to be heard in the county in which the lawsuit is being filed ( CCP § 396a ). You can find a sample  Declaration of Venue  on our forms page here .

Complete all necessary forms

You will need to complete several forms to begin your case, including:

• Complaint (form or customized pleading, depending on type of case)
• Summons   ( SUM-100 )
• Civil Case Cover Sheet  (CM-010)

The Complaint is the main document you will use to initiate your lawsuit. In it, you will outline your case against the defendant; describe the legal basis for your lawsuit (your causes of action ); provide the facts giving rise to your claim; and explain what you’d like the court to order the plaintiff do, such as pay damages or perform a certain action. The specific forms or documents you will need depend on the nature of your lawsuit.

Judicial Council standardized forms

The Judicial Council has developed fill-in-the-blanks forms for a few common types of lawsuits: breach of contract and personal injury or property damage. You must include the basic Complaint  and  one or more Causes of Action:

Breach of Contract

Complaint- Contract (PLD-C-001)   and one or more :

• Cause of Action- Breach of Contract (PLD-C-001(1) )
• Cause of Action- Common Counts ( PLD-C-001(2))
• Cause of Action- Fraud (PLD-C-001(3))

Personal Injury/Torts

Complaint- Personal Injury, Property Damage, Wrongful Death (PLD-PI-001 )  and one or more :

• Cause of Action- Motor Vehicle (PLD-PI-001(1))
• Cause of Action- General Negligence (PLD-PI-001(2))
• Cause of Action- Intentional Tort (PLD-PI-001(3))
• Cause of Action- Premises Liability (PLD-PI-001(4))
• Cause of Action- Products Liability (PLD-PI-0 01(5) )
•   Exemplary Damages Attachment (PLD-PI-001(6))

For instructions on completing a Complaint using fill–in–the–blank forms, see Chapter 5 of  Win Your Lawsuit  ( KFC 968 .Z9 D86  (Self-Help)).

All Other Cases:

If there is no fill-in-the-blank form, you will need to research and write the complaint yourself, using 28-line pleading paper. Pleading paper pre-formatted for Sacramento County Superior Court may be downloaded from our website. You will still need the Judicial Council forms for Summons and Civil Case Cover Sheet.

Make copies

After completing and signing your forms/pleadings, make two additional copies of your documents, and assemble your packet for filing as follows:

• Original  Civil Case Cover Sheet  (CM-010), and two copies, together in one packet
• Original  Summons  (SUM-100), and two copies, together in one packet
• Original  Complaint  with all causes of action and attachments, and two copies, together in one packet.

In Sacramento, the  original  of each multiple-page document is  not stapled , while each of the  copies  is  stapled . ( Sacramento County Superior Court Local Rule 2.02 .) Each county has its own rules regarding this, so if you are filing in another court, be sure to check that court’s rules. In counties that use physical files for documents, rather than scanning them, originals must be two-hole punched at the top of the page. Two-hole punching in Sacramento is optional.

File your documents

In Sacramento, new complaints are filed in the drop box in Room 100 on the first floor of the  Gordon D. Schaber Courthouse  at 720 Ninth Street in downtown Sacramento.

4.1: Determine your filing fee

The filing fees currently range between $225 and $435, depending on the type of case, and damages demanded. Current fees are available on the Sacramento County Superior Court’s fee schedule or the website of your local court. Payment must be made by check or cashier’s check only. If you qualify for a fee waiver, you may file a request with the court along with your Complaint, instead of the fee. For more information, see our guide on Fee Waivers .

Step 4.2: File your documents in the drop-box

Near the dropbox, you will find a supply of  Civil Document Drop-Off Sheets  and a date stamp machine. Date-stamp the back of each of your original documents. This will be the filing date of your documents.

Following the instructions posted at the drop box, place your documents in the drop box. Be sure you include:

• Civil Document Drop-Off Sheet;
• The packets you made in Step 3;
• A check or cashier’s check for the filing fee, or the Fee Waiver forms if asking the court to waive the filing fee;
• Self-addressed stamped envelope, if you want the court to return a filed/endorsed copy of these documents to you. Be sure to include sufficient postage to return your document packet.

The court will process your paperwork and scan it into the electronic filing system. This may take several weeks; the Sacramento Court’s Civil Department page lists the dates of documents currently being processed. If you included a self-addressed stamped envelope, the court will return a filed/endorsed copy to you. Otherwise, you may download endorsed copies of your documents at no charge from the Sacramento Court’s Public Portal .

Have your documents served

Once you receive the endorsed copies, you must arrange to have each defendant served. Service must be completed by someone over the age of 18, who is not a party to the case. This can be the Sheriff’s Civil Bureau, a registered process server, an attorney, or a friend or family member who is over 18 and not a party in the case.

Each defendant must be served with a stamped copy of:

• Summons  (SUM-100)
• Complaint  plus all causes of action
• ADR Package

If you are filing an unlimited civil case in Sacramento County, you must also serve:

• Stipulation and Order to Mediation – Unlimited Civil  (CV-E-MED-179 )
• Program Case Notice for Unlimited  (CV\E-143U)

You may make as many photocopies of the endorsed documents as necessary. Service of photocopies is acceptable.

The defendant must usually be served by the server handing it directly to the defendant. For more about service of the summons and complaint, see the California Courts’ guide on “Service of Court Papers.”

What’s next?

If the defendant files an Answer (or other response), the parties begin the long process of preparing for trial. There will be many more documents to file and serve throughout the lawsuit. For an overview, see our article, “ Steps in a Lawsuit .”

If the defendant does not file an answer, you can request a default judgment after their time to respond runs out. This prevents them from filing anything in the case (other than a request to set aside the default judgment). But be aware that the defendant can file an answer late if you have not yet filed your request for default . For more information, see our guides on Requesting a Default Judgment by Clerk and Requesting a Default Judgment by Court .

SH@LL (Self-Help at the Law Library) (formerly Civil Self Help Center) 609 9 th Street, Sacramento CA 95814 (916) 476-2731 (Appointment Request Line)

Services Provided: SH@LL provides general information and basic assistance to self-represented litigants on a variety of civil legal issues, including name changes. All assistance is provided by telephone. Visit “What we can help with ” for a list of qualifying cases.

Eligibility: Must be a Sacramento County resident or have a qualifying case in the Sacramento County Superior Court.

For more information

The following books have information about the process of filing and prosecuting a lawsuit, and/or information about the causes of action you may wish to include. They are all available at the Law Library.

California Civil Practice: Procedure ( KFC 995 .A65 B3 (Vol. 2, Chap. 7))

California Civil Procedure Before Trial ( KFC 995 .C34 (Vol. 2, Chap. 15)). Electronic Access: On the Law Library’s computers, using OnLaw.

California Causes of Action ( KFC 1003 .C35 ). Electronic Access: On the Law Library’s computers, using VitalLaw .

California Elements of an Action ( KFC 1003 .S74 )

California Forms of Pleading and Practice ( KFC 1010 .A65 (Ready Reference)). Electronic access: On the Law Library’s computers, using Lexis Advance . Includes common topics such as:

• Attorney Professional Liability, Vol. 7, Chap. 76
• Automobiles, Vol. 8, Chaps. 80-92
• Claim and Delivery, Vol. 12, Chap. 119
• Contract, Vol. 13, Chap. 140
• Conversion, Vol. 13, Chap. 150
• Injunctions, Vol. 26, Chap. 303
• Libel and Slander, Vol. 30, Chap. 340
• Medical Malpractice, Vol. 36, Chap. 415
• Negligence, Vol. 33, Chap. 380
• Partition of Real Property, Vol. 35, Chap. 397
• Premises Liability, Vol. 36, Chap. 421
• Products Liability, Vol. 40, Chap. 460

California Jurisprudence 3d (CalJur 3d) ( KFC 80 .C35 (Ready Reference))

California Practice Guide: Civil Procedure Before Trial ( KFC 995 .W45 (Vol. 1, Chap. 6; Forms Volume, Chap. 6))

California Practice Guide: Civil Procedure Before Trial: Statutes of Limitations ( KFC 995 .W45)

California Practice Guide: Civil Procedure Before Trial: Claims and Defenses ( KFC 995 .W45 )

Litigation By the Numbers ( KFC 995 .G67 (Chap. 1))

Win Your Lawsuit ( KFC 968 .Z9 D86 (Self-Help))

• A few types of specialized cases require a Petition. These always require additional research and are not covered in this guide. ↑

This material is intended as general information only. Your case may have factors requiring different procedures or forms. The information and instructions are provided for use in the Sacramento County Superior Court. Please keep in mind that each court may have different requirements. If you need further assistance consult a lawyer.

Article III, Section 2, Clause 1:

The judicial Power shall extend to all Cases, in Law and Equity, arising under this Constitution, the Laws of the United States, and Treaties made, or which shall be made, under their Authority;—to all Cases affecting Ambassadors, other public Ministers and Consuls;—to all Cases of admiralty and maritime Jurisdiction; to Controversies to which the United States shall be a Party;—to Controversies between two or more States; between a State and Citizens of another State, between Citizens of different States,—between Citizens of the same State claiming Lands under Grants of different States, and between a State, or the Citizens thereof, and foreign States, Citizens or Subjects.

An assignment of a legal claim occurs when one party (the “assignor” ) transfers its rights in a cause of action to another party (the “assignee” ). 1 Footnote Black’s Law Dictionary 136 (9th ed. 2009) (defining “assignment” as “the transfer of rights or property” ). The Supreme Court has held that a private litigant may have standing to sue to redress an injury to another party when the injured party has assigned at least a portion of its claim for damages from that injury to the litigant. The Supreme Court in the 2000 case Vermont Agency of Natural Resources v. United States ex rel. Stevens held that private individuals may have Article III standing to bring a qui tam civil action in federal court under the federal False Claims Act (FCA) on behalf of the federal government if authorized to do so. 2 Footnote 529 U.S. 765, 768, 778 (2000) . The FCA imposes civil liability upon “any person” who, among other things, knowingly presents to the federal government a false or fraudulent claim for payment. 3 Footnote 31 U.S.C. § 3729(a) . To encourage citizens to enforce the Act, in certain circumstances, a private individual, known as a “relator,” may bring a civil action for violations of the Act. Such plaintiffs sue under the name of the United States and may receive a share of any recovered proceeds from the action. 4 Footnote Id. § 3730(d)(1)–(2) . Under the FCA, the relator is not merely the agent of the United States but an individual with an interest in the lawsuit itself. 5 Footnote Vt. Agency of Nat. Res. , 529 U.S. at 772 ( “For the portion of the recovery retained by the relator . . . some explanation of standing other than agency for the Government must be identified.” ) (citing 31 U.S.C. § 3730 ).

Ordinarily, if the relator’s financial interest in the outcome of the case were merely a byproduct of the suit itself, there would be no injury sufficient for standing. 6 Footnote Id. at 772–73 ( “An interest unrelated to injury in fact is insufficient to give a plaintiff standing. . . . A qui tam relator has suffered no [invasion of a legally protected right]—indeed, the ‘right’ he seeks to vindicate does not even fully materialize until the litigation is completed and the relator prevails.” ) (citations omitted). The Supreme Court has held that a litigant’s interest in recovering attorneys’ fees or the costs of bringing suit by itself normally does not confer standing to sue. E.g. Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 107 (1998) ( “The litigation must give the plaintiff some other benefit besides reimbursement of costs that are a byproduct of the litigation itself.” ); Diamond v. Charles, 476 U.S. 54, 70–71 (1986) ( “[T]he mere fact that continued adjudication would provide a remedy for an injury that is only a byproduct of the suit itself does not mean that the injury is cognizable under Art. III.” ). In Stevens , however, the Supreme Court recognized a distinction that confers standing upon qui tam plaintiffs in FCA cases. Justice Antonin Scalia, writing for the Court, determined that assignments of claims are distinguishable from cases in which a litigant has a mere financial interest in the outcome of the suit because the assignee-plaintiff actually owns a stake in the dispute as a legal matter. 7 Footnote Vt. Agency of Nat. Res. , 529 U.S. at 773 . Justice Scalia drew support for this distinction from the long-standing historical practice of the government assigning a portion of its damages claim to a private party and allowing that party to assert the injury suffered by the federal government as a representative of the United States. 8 Footnote Id. at 774, 778 The Court noted the “long tradition of qui tam actions in England and the American colonies,” 9 Footnote Id. concluding that “Article III’s restriction of the judicial power to ‘Cases’ and ‘Controversies’ is properly understood to mean ‘cases and controversies of the sort traditionally amenable to, and resolved by, the judicial process.’” 10 Footnote Id. Although the Court held that the relator had standing to sue under the qui tam provision, it ultimately determined that the plaintiff could not maintain the action against a state agency for allegedly submitting false grant claims to the EPA because states were not “persons” subject to liability under the False Claims Act. Id. at 787 .

Eight years after deciding Stevens , the Supreme Court again found that an assignee of a claim had standing, even when the assignee had promised to remit all of the money it recovered in the proceedings to the assignor. 11 Footnote Sprint Commc’ns Co. v. APCC Servs., Inc. , 554 U.S. 269 , 271 (2008) . In Sprint Communications Co. v. APCC Services, Inc. , payphone operators had assigned their legal claims for money owed to them by long-distance communications carriers to third-party collection agencies. 12 Footnote Id. at 271–72 . The agencies were authorized to bring suit on behalf of the payphone operators and promised to pay all of the proceeds of the litigation to the payphone operators for a fee. 13 Footnote Id. at 272 . The Court held that these collection agencies had standing to pursue the operators’ claims because of the long history of courts’ acceptance of such claims. 14 Footnote Id. at 273–75 . The Court noted that “federal courts routinely entertain suits which will result in relief for parties that are not themselves directly bringing suit. Trustees bring suits to benefit their trusts; guardians ad litem bring suits to benefit their wards; receivers bring suit to benefit their receiverships; assignees in bankruptcy bring suit to benefit bankrupt estates; executors bring suit to benefit testator estates; and so forth.” Id. at 287–88 . Assignment was sufficient to transfer the injury to the collections agencies, and the injury to the operators that had been transferred to the collection agencies would be redressed by a favorable judicial decision, even if the agencies would subsequently pay all of the proceeds to the operators. 15 Footnote Id. at 286–87 ( “[I]f the [collection agencies] prevail in this litigation, the long-distance carriers would write a check to [them] for the amount of dial-around compensation owed. What does it matter what the [agencies] do with the money afterward?” ).

The Stevens and Sprint cases could have broader implications for Article III standing doctrine, as they suggest a way in which the constitutional limitations on standing may be bypassed through the assignment of rights to a third party. 16 Footnote See also ArtIII.S2.C1.6.4.3 Particularized Injury. For instance, if Congress enacts a federal statute recognizing an injury to the federal government that otherwise satisfies Article III’s requirements, it may assign a portion of its claim to a private party, thereby potentially giving that plaintiff standing to sue as a representative of the United States. 17 Footnote See Vt. Agency of Nat. Res. , 529 U.S. at 773 . This is essentially the operation of the False Claims Act. 18 Footnote 31 U.S.C. §§ 3729–3733 . However, it is unclear whether every such statute would necessarily resolve all Article III standing concerns. In Stevens and Sprint , the Court gave significant weight to the lengthy history of courts recognizing the types of assignments at issue when determining that the litigants in those cases had standing to sue. 19 Footnote See id. at 774, 778 ; Sprint Commc’ns Co. , 554 U.S. at 273–75 . Moreover, there may be a number of concerns about the constitutionality and practicality of using assignments to delegate core government functions (e.g., criminal prosecutions) to private parties when courts have not historically recognized claims based on such assignments, including concerns about interference with the Executive Branch’s Article II powers and prosecutorial discretion. 20 Footnote See Heather Elliott , Congress’s Inability to Solve Standing Problems , 91 B.U. L. Rev. 159 , 195–204 (2011) (questioning whether Congress’s assignment of claims to citizen suitors in order to confer standing would be constitutional or practical).

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CACI No. 2332. Bad Faith (First Party) - Failure to Properly Investigate Claim - Essential Factual Elements

Judicial council of california civil jury instructions (2024 edition).

© Judicial Council of California .

Page last reviewed May 2024

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Post-loss Assignment of Claims in California

In a prior blog , I discussed the California Supreme Court’s decision in Fluor Corporation v. Superior Court , 1 regarding the post-loss assignment of insurance benefits. In Fluor , the California Supreme Court held that section 520 of California’s Insurance Code prohibits insurance companies from refusing to honor post-loss assignments of benefits, regardless of whether the assigned benefits (a) had accrued at the time of the assignment ( i.e ., constituted “Noncontingent Benefits”), or (b) had not yet accrued but could accrue if additional events occurred or additional conditions satisfied ( i.e. , constituted “Contingent Benefits”).

Within days of the California Supreme Court’s decision in Fluor , an affiliate of Hartford Accident & Indemnity Company, which was effectively the “losing” party in Fluor , relied on the decision in Fluor to obtain a victory in a (federal) District Court case that also concerned a post-loss assignment of rights pertaining to an insurance policy. In Hartford Casualty Insurance Company v. Fireman’s Fund Insurance Company , 2 Hartford Casualty sued Fireman’s Fund on its own behalf and as the assignee of three of Fireman’s policyholders. Hartford had issued a business liability policy to one of the Fireman’s policyholders, Herndon Partners. Herndon was owned by another of Fireman’s policyholders, Paul Owhadi. For its part, Fireman’s had issued (1) a homeowner’s policy to Mr. Owhadi, under which Herndon Partners was named as an additional insured, and (2) an excess liability policy to Mr. Owhadi and the third policyholder, Susan Owhadi.

Fireman’s excess policy contained exclusions for business activity, business property, and workers compensation. The Fireman’s Fund policies also contained a clause which stated, “Assignment of this policy or a claim will not be valid unless we give our written consent.” 3

All of the policies covered, or seemed to cover, the property on which a worker was electrocuted and died. At the time of the death, the property was owned solely by Herndon Partners. Hartford defended Herndon in the wrongful death lawsuit that followed but Fireman’s Fund denied coverage because Herndon was not a named insured under either of its policies. Fireman’s also raised the business exclusions in its excess policy as grounds for denying coverage under that policy.

After an $8.8 million judgment was entered against Herndon, all three of the policyholders assigned to Hartford, “claims against Fireman’s Fund related to the wrongful death lawsuit and the two Fireman’s Fund policies.” 4 Hartford then filed a complaint against Fireman’s Fund for indemnity, contribution, professional negligence, declaratory judgment, and reformation of the Fireman’s Fund policies. Specifically, Hartford alleged that Fireman’s Fund knew that the property was owned by Herndon and that it was a rental property. Therefore, according to Hartford, Fireman’s policies should be “reformed” to delete the business exclusions and name Herndon as an insured.

Fireman’s moved to dismiss the reformation claim alleging that Hartford lacked standing to bring that claim because (1) Fireman’s policies expressly prohibited the assignment of claims without its consent, and (2) the California Supreme Court’s decision in Fluor did not apply to the reformation claim because a reformation claim does not seek “defense or indemnification coverage.” 5

The District Court rejected Fireman’s arguments, holding that under section 520 of California’s Insurance Code and the California Supreme Court’s decision in Fluor , the clause in Fireman’s policies that prohibited assignments was void regarding post-loss assignments. 6 The District Court also held that section 520 “applies broadly” and protected Hartford’s cause of action for reformation. 7, 8

The decision in Hartford is significant to the degree it suggests that the courts in California may interpret and apply section 520 broadly to post-loss assignments that pertain to rights or benefits under an insurance policy, including legal rights and causes of action not set forth in the policy. While the decision in Hartford pertained specifically to liability policies, neither the language of section 520 nor any court decisions I have found appear to limit the statute’s application to liability policies.

Determining the validity of an assignment pertaining to an insurance claim or policy always begins with an analysis of the terms of both the policy and the assignment. Before making any major decisions concerning an assignment, policyholders should seek independent professional advice and, when applicable, obtain multiple bids or offers from prospective assignees or purchasers of the assigned rights. ____________ 1 Fluor Corp. v. Superior Court , 61 Cal.4th 1175, 354 P.3d 302 (Cal. 2015) . 2 Hartford Cas. Ins. Co. v. Fireman’s Fund Ins. Co. , 2015 WL 5168643 (N.D. Calif. Sept. 3, 2015) . 3 Id. , fn. 3 (emphasis added). 4 The decision in Hartford does not specify what claims were assigned or how they were described in the assignment. 5 According to the opinion in Hartford , the quoted language was drawn from the Fluor decision by Fireman’s Fund. Partly because that phrase is found in multiple locations in the Fluor decision, it is not clear which instance of the phrase Fireman’s Fund was referring to. However, I believe the quotation is from the Supreme Court’s closing paragraph in Fluor : “For the reasons set forth, Insurance Code 520 applies to third party liability insurance. Under that provision, after personal injury (or property damage) resulting in loss occurs within the time limits of the policy, an insurer is precluded from refusing to honor an insured’s assignment of the right to invoke defense or indemnification coverage regarding that loss. This result obtains even without consent by the insurer — and even though the dollar amount of the loss remains unknown or undetermined until established later by a judgment or approved settlement.” [Emphasis added.] 6 Id. , *4 (“Thus, under Insurance Code § 520, the clause prohibiting the assignment of claims against Fireman’s Fund is void”). 7 Id. (“Nothing in the text of Insurance Code § 520 limits its applicability to only claims involving ‘defense or indemnification.’”). 8 Section 520 states, in its entirety, “An agreement not to transfer the claim of the insured against the insurer after a loss has happened, is void if made before the loss.”

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What is “Assignment” of a Bad Faith Claim?

When an insurance company fails to settle a claim within its insured’s policy limits (despite a reasonable likelihood that a verdict will exceed those policy limits), the insurance company may be exposed to a claim for bad faith. 

Under the law, an insurance company has a duty to give fair consideration to the rights of its insured when considering a settlement offer. 

Let’s say an insurance company fails to consider its policyholder’s rights in deciding whether to accept a reasonable settlement offer. As a result, the policyholder’s assets are exposed to a judgment in excess of their insurance protection. In this situation, the policyholder may have a bad faith claim against the insurance company.  

For example, a driver of a vehicle who is insured with a policy limit of $100,000 causes an accident that results in over $300,000 in damages to the other driver.  The injured driver wants to settle the case for the $100,000 limit, but the at-fault driver’s insurance company refuses to accept the offer without a reasonable basis for doing so.

The case then proceeds to trial and results in a verdict far exceeding the amount of the coverage available, jeopardizing the policyholder’s personal assets.  In that situation, the policyholder is personally on the hook for $200,000 when their insurance company should have ensured they paid nothing out of pocket. 

If there is a reasonable likelihood of an excess verdict, like when the injured claimant’s medical bills exceed the policy limit, and the insurer still fails to settle the claim, the insurance company has breached its duty of good faith to its policyholder. 

In this situation, the policyholder has the right to bring a cause of action against the insurer, not the injured driver, for the amount of the excess verdict. The policyholder had a contractual relationship with the insurer, and the policyholder is obligated to compensate the injured victim.  Technically, it is the insured who was wronged through their relationship with the insurer.  Thus, the bad faith claim belongs to the insured. 

How does the injured victim get compensated?

Only a small minority of states allow the injured third-party to bring a bad faith action directly against the insurance company. However, in many jurisdictions, including Illinois, the policyholder can transfer, or “assign,” their right to pursue the bad faith claim against the insurer to the injured victim. 

Often, the policyholder will trade their rights to prosecute the bad faith claim, in exchange for an agreement not to execute the judgment against the policyholder’s assets.   Essentially, they trade their case against the insurance company for relief from the judgment.  The assignment of a bad faith claim can be accomplished by a voluntary agreement or may be compelled by an order of the court. 

What happens when an insurance company refuses to defend its policyholder?

Sometimes, an insurance company may refuse to defend its insured in a third-party claim by an injured party.  Insurers may claim that there is no coverage for an occurrence for whatever reason, and because there is no covered event, there is no duty to defend the insured. 

Some courts find that, where an insurer improperly refuses to represent its insured, the insured may settle the claim on their own, directly with the injured claimant, and then seek reimbursement from the insurance company. [i]  

This is often true, even if the policy precludes settlements made without the insurance company’s consent. [ii]   Often where this is the rule, an insured can agree to have a judgment entered against them for a certain amount, and then assign the bad faith claim connected to that judgment to the injured victim. 

In summary, even though a third-party claimant will most likely be unable to pursue a claim for bad faith directly against the offending insurance company, compensation for the injured victim can often be awarded via assignment of the insured’s bad faith claim. 

[i] See, e.g. Ansonia Assoc. Ltd. P’ship v. Pub. Serv. Mut. Ins. Co., 693 N.Y.S.2d 386, 389 (1998)

[ii] See Id.

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